My journey to a simpler life filled with riches

I’ve recently discovered Mr Money Mustache and have consumed all of his posts and delved headlong into the Forums. What a treasure trove!

One of the themes of his blog is The 4% Rule, which is essentially a rough guide to how much you need to retire. This little figure is based on The Trinity Study, a study to determine “safe withdrawal rates” from retirement portfolios that contain stocks and thus grow (or shrink) irregularly over time. This study defined ‘success’ as not going broke during a 30-year test period.

So if I accept that a 4% withdrawal rate won’t leave me broke in my old age, then the assumption is that I would need a portfolio of $1 Million to give me $40,000 per annum.

The interesting thing for me, is that (as MMM points out) the trinity study assumes a retiree will:

never earn any more money through part-time work or self-employment projects

never collect a single dollar from social security or any other pension plan

never adjust spending to account for economic reality like a huge recession

never substitute goods to compensate for inflation or price fluctuation

never collect any inheritance from the passing of parents or other family members

and never spend less as they age

I fully expect that we will do a bit in our retirement to keep some money trickling in; we expect to get a bit from superannuation in our old age (but when or how much is yet to be seen); and we know that we can downscale our life if circumstances require it. So, in short, the 4% rule is theoretically quite conservative.

After reading all of this, I started to feel like maybe it was possible to retire easily at 40. However being the careful person that I am, I wanted to test some assumptions by running a few scenarios. This is where some Early Retirement calculators came in very handy. You can check them out here:

Superannuation or pension of $30,000 per annum starting when I turn 60.

Additional savings of $50,000 per annum until 40 (retirement age).

Scenario 1. In the first simulation, I assumed that we continued to spend like we currently do (minus things like childcare that we would no longer use), that we would continue to rent a house in our retirement and that we make no additional income. This scenario has a 63-71% chance of success (i.e. that we don’t go broke).

Scenario 2. On the second run, I cut our living expenses by 25%. This time, we have a 95-100% chance of success. Okay, that sounds better, but we don’t really want to rent forever. We want to buy ‘The Farm’ when we retire! Let’s see what happens.

Scenario 3. Ok, so this time we bought ‘The Farm’ for $500,000 upon retirement. I reduced our expenses by the equivalent of the rent we wouldn’t pay. This scenario has a 73-81% chance of success, which is not good enough for conservative old me.

Scenario 4. What if we bring in a small income of $10,000 per annum in retirement? Well, it looks like we have 97-99% chance of success! That will do!

So what does all of this mean? Essentially I can retire easily at 40 IF we reduce our current living expenses by 25% before then. If we want to buy ‘The Farm’ then we have to be prepared to find an additional $10,000 per annum from some side hustles, which I think is more than achievable.

That was a very worthwhile exercise and I feel like we now have something concrete to work towards:

Develop a budget such that we can live comfortably on 25% less than what we currently spend (not including childcare and other work-related expenses that would disappear in retirement).

Identify some opportunities for side hustles that could bring in $10,000 per year.

In just over 2 1/2 years I’ll be 40 and that’s the deadline that I’m setting for my retirement.

I’m putting it out there and publically setting a goal of retiring before mid 2017.

So, how did I arrive at this point?

I started working when I was 12, cleaning the floors of a pizza restaurant every morning before school. At 16 I was working three jobs in addition to going to school, playing sport and being involved in other extra-curricular activities. I bought my own car and started investing in shares. I finished school and went off to University to earn a degree in Engineering.

By the time I was 23, I decided I’d had enough of working. At that point I set a goal to retire at 40. My staff at that time (who were 20 years my senior) laughed at me and told me to just go out and enjoy my life. After all, you are only young once. I ignored them and decided instead to invest in rental properties that I set up as student accommodation for the nearby University. The property market boom was just beginning and because I had set my properties up to have a positive cash flow, the banks were more than happy to keep lending me money. Within 18 months I had five houses. Between working full-time and managing my rentals, I worked long hours but the hard work and risks I took in those 18 months have set me up for life. Thankyou to my 23 year old self for your foresight!!!

Since then, life has had it’s share of ups and downs. I lost a lot of money in the Global Financial Crisis (GFC) of 2008. It was really, really painful. But….I learned a very valuable lesson about how the global financial system really works. I won’t go down that rabbit hole right now, else we’ll be here all day. I decided to get out of debt as quickly as possible and re-focus on my goals of financial independence in a different way.

Twelve years ago I met my husband, we got married in 2007 and in 2012 our son was born. Since the birth of our boy, I’ve been in a baby-induced bubble. Between full-time work and the all consuming role of raising a new human, there has been little time or headspace to dedicate to anything else. I wonder whether other new parents can relate? I am just now finding that I am able to start looking back outside myself and my family to the big picture.

When I finally put my head above the parapet and had a look around, I realised that my husband and I had achieved all of the goals we had set for ourselves. We had lived overseas for a few years, we have paid off all our debt, we had started a family and my husband left work to become a Stay At Home Dad (SAHD). In fact, I just rediscovered this post from 5 years ago and am amazed at how much of that dream has now come true. There are still some parts of this dream I’m still working on, but the ‘bones’ of it we have already.

I’m the sort of person that needs that 5 year vision to be set clearly in my mind. Once I can visualise it, things seem to just fall into place. It’s easy to make decisions based on whether the outcome will take you closer or further away from your dream. Lately I’ve been feeling a bit lost. Without that clear vision, I don’t have a guide for making decisions.

For this reason, I need to start developing a new vision of the future. That starts with my decision to retire at 40…halfway through my next 5 year plan.

What comes after? Not yet sure.

What comes before? That’s what I need to work out with some more clarity.

It had been many years since I last went camping, but in the last few months I have been aching for more time in the mountains surrounded by trees. Living on the coast in Southern California makes it difficult to get my dose of green, so I’ve been pestering hubby for weeks to take me camping. Finally we made the time to go the other weekend. We packed up all our stuff, put the dog in the back and headed off to the mountains for a couple of days hiking. Even though I knew I wanted to love camping, I wasn’t really sure how I was going to like it. Thankfully I loved every minute of it and I think there were a couple of important lessons that could be integrated back into my everyday life:

Making do with what we we have. While camping, we only have limited amounts of food and water. Being happy eating from our limited stores is a good mental skill to have.

Enjoying the simple things. Building a fire, practicing on the slackline or making a coffee over the camp stove can all be lessons in living in the moment and enjoying the simple things.

Remaining flexible. On our first day of hiking, our dog was not well. After one and a half hour hours of hiking the Pacific Crest Trail she simply stopped and would not get up again. Hubby had to put her over his shoulders (all 62 pounds or 28kg) and carried her out. Thankfully we weren’t too far from a road, so I sat with her in the shade while hubby went back for the car. Our day of hiking was somewhat ruined, but conducting a medical evacuation for our dog was a good lesson in remaining flexible to changing conditions.

Since getting back to our everyday life, I’ve been dreaming of heading back to the mountains. Unfortunately we don’t have any weekends free at the moment, but later this month we plan to spend a week in Colorado, South Dakota and Wyoming…camping all the way. I can’t wait.

I’ve been off gallivanting around the country for the last month and now I’m finally home. I spent a wonderful week in Alaska visiting a good friend with my Husband and my Sister-in-Law. Afterwards, my friend and I spent a long weekend in New York City and then I was off to Washington, DC and Cape Canaveral, Florida for two week-long work conferences.

Something has intrinsically changed in me. I no longer get the huge thrill that travelling used to instill in me. Sure, it was great seeing new places and catching up with various friends that I haven’t seen for some time, but the whole time I felt like I was no longer being true to the new me. All those miles travelling via air, consuming convenient food and being exposed to all the waste that modern industrial society produces really bugged me. In fact, I was beyond being bugged by it. I physically cringed.

At some point in the last three months I’ve reached a tipping point. I had gone from someone who was casually downshifting their life to someone whose fundamental value system has taken a massive leap. Now I’m at a point where values I’ve held for much of my life are conflicting with new, strongly held beliefs. To be honest, it feels good. Scary, but good.

I’ve been a little quiet on the blog for this reason. I was having a hard enough time working through things in my head, let alone putting it coherently on the screen. I was reading so much, thinking so much and all at a frenetic pace. A month away let me digest some of it, and hopefully I can now begin writing down what I’m feeling and where to from here.

Yes….I’ve been in Alaska for the week. I’ve been without internet access until now so I wasn’t able to add any words to the picture I already had pre-posted. That will serve me right for assuming I could get easy access to internet anywhere.

I must say Alaska has been truly stunning. We’ve been hiking in snow, cross-country ski-ing and dog-sledding. We’ve seen an amazing array of wildlife which is a huge plus for me. We watched the start of the great Iditarod race and an ice-hockey game. We’ve also spent a good amount of time indoors catching up with my friend who lives up here.

I’ve been very quiet in the blogging world this week. Instead I have been doing lots of reading and lots of planning. I’ve devoured countless documentaries, articles and a whole book this week as I was searching for more information on peak oil. The Crash Course I watched last weekend set something off in me. I had been downshifting to a simpler life, but somehow after all this reading it all seems all the more important that we prepare for a life with less fossil fuels. It suddenly became very clear that the next 20 years are going to be completely unlike the last 20 years, and I want to prepare myself for that. I’m sure I’ll expand more on what I’m thinking, but here’s a quick list of what I’ve been doing this week.

I made the very big decision to sell the remainder of my shares. I’ve sold them for quite a loss and I’ll leave the reasoning to a separate post.

I’ve prepared a shopping list for a stockpile of food and equipment in the case of disaster. After seeing those terrible fires rip through the southern parts of Australia while the north dealt with cyclones (hurricanes) and mass flooding I thought I really should get myself prepared to deal with a similar situation. I live in Southern California where huge fires or an earthquake are not impossibilities. I rather be self sufficient and perhaps have enough for friends if the power goes out or the shelves run bare.

We have our garden cleared and tilled ready for the heirloom vegetable seeds I ordered last week. I can’t wait to get started.

I shared my thoughts and plans with my best friend. I was expecting her to call me crazy, but she is completely on the same page. I’m so thankful I now have someone else in my real life to talk to about such things. I’ve also been planting the seeds for more in-depth conversations with both my parents. My sister is a lost cause for the moment.

We’ve been doing more by hand. I’m more vigilant about not using the dryer so I went without certain clothes during the recent rains. We’ve also been hand-washing the dishes for the last week. They are small steps, but I feel like I’m setting myself on the path of increased resilience if I had to do without certain luxuries like a dishwasher.

We’ve been making meals completely from scratch. No jars, no canned foods. Just dried staples such as flour, oats, sugar, legumes and fresh produce which comes from the farmers market as much as possible. We’ve actually enjoyed the challenge of preparing a meal with what we have at hand rather than rushing off to the grocery store for specific ingredients.

We’ve spent next to nothing in the last few weeks. I ride my bike to work and the car has not needed gas, our diet of making do has reduced the cost of groceries, and our entertainment has consisted of free activities like hikes in nature, book clubs, free matinee movies and a home-cooked dinner party with friends.

We are also starting to go to local events in our community regarding renewable energy, water conservation, gardening and composting. Just meeting like minded people has been such a boost.

This weekend I have been completely engrossed in watching The Crash Course, which is Chris Martensen’s best attempt to explain exactly how we got into this economic crisis.

While The Crash Course is divided into small video sections of 3-18 minutes each, the whole thing runs just over 3 hours. We had it on DVD and watched the whole thing from beginning to end. While I already knew many of the themes in this presentation (Economic slump, Peak Oil, Environmental Problems, Baby Boomer Retirement, World Overpopulation), I found The Crash Course an excellent way of summarizing it all and showing how they all relate.

I’ve been dedicated to downshifting during the last few months, but somehow becoming aware of all this information has made the task more imperative and urgent for me. As I digest all of this more fully, I’m sure I’ll share my thoughts over the coming weeks and months.

If any of you have already seen this presentation, I’d love to hear your thoughts.